Budget – 47.6 lakh crore or 47.6 trillion – 14% of GDP projected in FY25 (330 lakh crore)
Total expenditure in BE 2024-23
Revenue Expenditure in BE 2024-25 – 36 lakh crore
Grants in Aid for creation of capital assets – 3.9 lakh crore
Interest payments – 12 lakh crore
25% of total expenditure, 33% of revenue expenditure and 40% of revenue receipts
Capital expenditure in BE 2024-25 – 11.11 lakh crore – 23% of total expenditure – 3.45% of GDP
Capex has increased by 16.9% over RE 2023-24 and 11% over BE 2023-24 (10 lakh crore)
Capex - increased from 1.5% of GDP in 2017-18 to 3.45% of GDP in 2024-25 – Capex trebled in last 4 years
Effective Capital Expenditure in BE 2024-25 – 15 lakh crore
Capital Expenditure + Grants in Aid to states for creation of capital assets
Total receipts in BE 2024-25
Revenue Receipts in BE 2024-25 – 30 lakh crore
Net Tax Revenue – 26 lakh crore
Non Tax Revenue – 4 lakh crore - Include interest receipts, dividends and profits, grants
Capital Receipts in in BE 2024-25 – 17.6 lakh crore
Borrowings and Other liabilities or Debt Receipts or Fiscal Deficit – 17 lakh crore – 5.1% of GDP
Deficits
Fiscal deficit – 17 lakh crore – 5.1% of GDP
FD is reduced from 9.2% in FY21, 5.9% in BE FY24 and 5.8% in RE FY24
Revenue Deficit – 6.5 lakh crore – 2% of GDP
RD is reduced from 7.3% in FY21, 2.9% in BE FY24 and 2.8% in RE FY24
Effective Revenue deficit – 2.6 lakh crore – 0.8% of GDP
Primary deficit – 5 lakh crore – 1.5% of GDP
PD is reduced from 5% in FY21
Rupee comes from
Borrowings and other liabilities – 28%
Income Tax – 19%
Goods and Service Tax – 18%
Corporation Tax – 17%
Non Tax Revenue – 7%
Union Excise Duties – 5%
Customs – 4%
Non Debt Capital Receipts – 1%
Rupee goes to
Interest Payments (20%)
States' share of Taxes and Duties (20%)
Central Sector Schemes (16%)
Finance Commission and other transfers (8%)
Centrally Sponsored Schemes (8%)
Defence – 8% - 1.5% of total GDP
Subsidies – 6% (Food Subsidy – 4% and Fertilizer subsidy – 2.5%)
Pensions – 4%
Allocation for Specific Ministries
Ministry of Defence>Ministry of Road Transport and Highways>Ministry of Railways>Ministry of Consumer Affairs, Food and Public Distribution>Ministry of Home Affairs
My calculation
Agriculture and allied – 3% of total budget
Education – 2.6%
Health – 1.8%
MGNREGA – 1.8% from 2.5% in pre COVID era
Tax receipts
Gross Tax revenue – 38 lakh crore – 11.7% of GDP – highest in 15 years
Income Tax – 11.5 lakh crore - 19% of total receipts
GST – 10.67 lakh crore – includes only CGST, IGST and GST Compensation Cess – 18% of total receipts
Corporation Tax – 10 lakh crore – 17% of total receipts
Union Excise Duties – 3 lakh crore
Customs – 2 lakh crore
Direct Tax (6.7% of GDP) is higher than Indirect tax (5% of GDP)
Net Tax receipts – 26 lakh crore
Net Tax Receipts = Gross Tax Revenue – State Share of Taxes (12 lakh crore)
State share of Taxes = 41% of (Gross Tax Revenue minus GST) – 15th Finance Commission recommendation
Tax to GDP ratios
Central Tax to GDP – 11.7% and State Tax to GDP – 5%
Combined Centre and State Tax to GDP – 16.7%
Direct Tax – tax impact and tax incidence are same
Indirect Tax – Tax impact (on producer) and tax incidence (on consumer)
Union Excise Duty
type of indirect tax on goods manufactured in India. It's a production tax that's imposed on manufactured items in India that are meant for domestic consumption
not payable on the goods exported from India
Imposed in addition to an indirect tax such as goods & services tax (GST), sales tax or value-added tax (VAT)
Excise duty is the opposite of Customs duty in that it applies to items created domestically in India, whereas Customs applies to goods imported from outside the nation
The difference between excise duty and other indirect taxes is that excise duty is levied on the manufacture of goods and at the time of removal of goods from the factory, while GST or sales tax or VAT are levied on the supply of goods and services.
Budget 2024
Not populist and only vote on account
2019 - PM KISAN scheme and tax liability of individuals below 5 lakh (up from 3.5 lakh) income was waived off
Fiscal prudence, consolidation, conservatism, rectitude and discipline; Opposite – Fiscal profligacy
Fiscal deficit of FY24 – 5.8% lesser than 5.9% target; from 6.4% in FY23
Fiscal deficit of FY25 – 5.1% with target of 4.5% by FY26
Signals government’s vision of macroeconomic stability – lower than even the lower end of the range of economist projections of 5.2% to 5.5%
Marks unwinding of fiscal expansion driven by pandemic due to reluctance from household and private firms
Modern Day Keynesianism – government should step in when household and private firms are not willing to spend
At the same time government has also focused on crucial safety nets like PM Garib Kalyan Yojana
Assumptions – tax buoyancy, cut in fertilizer subsidy, food subsidy, projected increase in tax rates
Revenue deficit of FY24 – 2.8% (RE) lesser than 2.9% (BE); Revenue Deficit of FY25 – 2%
Primary deficit of FY25 – 1.5%
Significance of less fiscal deficit
Indian economy’s normal growth trajectory has returned that government feels less pressure to borrow and stimulate or provide extraordinary support to those worst impacted by pandemic induced disruptions
Impetus to growth is expected henceforth to come from private sector
Will release more resources for private corporates to invest
Macroeconomic stability – fiscal deficit, current account balance, balance sheets – will be conducive for revival of private investment
Counter cyclical fiscal policy
Creating fiscal space when growth recovers – meaningful fiscal consolidation is need of the hour
US fiscal deficit widened by a staggering 4% of GDP in 2023 even as Fed was crumbling to control inflation – fiscal and monetary policies against each other – fiscal policy being counter productive
Government wants private sector to fund country’s capex growth by facilitating larger availability of credit to private sector
Inflation is because of the stimulus that stayed too long as happened in India in 2010-2011-12
Government should also rebuild fiscal space which might be needed at some time in future
Private investment not picking up
Finance Minister said Hanuman hesitating to fly – without that there can be no sustained formal job creation leading to higher incomes and consumption
Capex
Year on year growth in capex – 11% will be faster than growth in overall spending – 6%
Drastic reduction in growth of capex – from an average year on year growth rate of 30% or more over the last three years, capex for FY25 will grow by only 16.9% compared to RE of FY24
Capex for FY24 was increased by 33% over BE 2022-23
State capex has grown by 50% in FY24
Measures to follow while reducing deficits while not affecting growth
Revenue based consolidation - Achieve consolidation by raising revenues rather than compressing expenditures – because expenditure multipliers are higher than revenue multipliers
Asset sales – because it is the least growth impinging manner of reducing deficit
Reasons for increase in indirect and direct taxes in FY24
Boom in service sector exports
Increased incomes of individuals associated with GCC and consulting services – thus expanding income tax base and giving a boost to direct tax revenues
Hike in indirect tax because high income earners spend more on items with higher GST rates
Decline in commodity prices
Led to expansion of corporate rate margins, boosting profits and corporate income tax revenues
But these are temporary and may not continue in FY25
Measures to reduce debt to GDP ratio
Fiscal deficit ratio must fall to slow down growth in government debt
But if it is brought down too rapidly, it hurts GDP growth
Denominator effect – boost nominal GDP growth rate (more from output than inflation)
Statements by FM
Comprehensive GDP of Governance, Development and Performance
Decade 2014-24 - decade of transformative growth
Government’s commitment to high quality spending – capex trebled in last 4 years
Policies aiming youth, poor, women and farmers
Transition from age old jurisdiction based assessment system to faceless assessment and appeal
Support to start up – PM Mudra, Start up Credit Guarantee, Start up India
Rationalization of fertilizer subsidies - After adoption of Nano Urea, Nano DAP
15 newly constructed AIIMS
Upgradation of Anganwadi centres under Saksham Anganwadi and Poshan 2.0
From outlay to output to outcome budget
New announcements
Promoting investment
Capex outlay – increased by 11% to 11.11 lakh crore – 3.45% of GDP and 23% of total expenditure (highest in 3 decades) - Government’s capex has trebled in last 4 years
Interest free 50 year capex loans to states – 1.3 lakh crore
Economic infrastructure - railways
Three major economic corridor programmes for Railway - Energy Economic Corridor (energy, cement and mineral); Port connectivity corridor or Rail Sagar; High traffic density corridors or Amrit Chaturbhuj
Upgrading 40,000 regular bogies into Vande Bharat standards
Research
A new scheme to strengthen deep tech capabilities in defence
Corpus of 1 lakh crore with interest free loans for private sector to invest in R&D in sunrise sectors
Housing
Scheme to enable deserving urban middle class to buy or build their own homes – from chawls, slums or unauthorized colonies
2 crore more rural houses in next 5 years under PMAY (Gramin) – already 2.5 crore out of 3 crore target homes
boost to real estate sector in rural areas – boost consumption growth and women empowerment
Green growth
300 units of free power a month for one crore households through roof top solar panels
benefits of 15,000 to 18,000 rupee annually by saving and selling surplus
Viability gap funding to support capital intensive offshore wind sector of up to 1GW capacity
Boost to EV ecosystem
Encouragement of payment security mechanism for adoption of e buses for public transport networks
Government’s focus on Metro Rail and Namo Bharat (with Vande Bharat and Amrit Bharat)
One lakh crore corpus for R&D can also boost EV ecosystem with innovations
New scheme of biomanufacturing and bio-foundry to provide environmental friendly alternatives such as biodegradable polymers, bio plastics, bio pharma, bio agri inputs – bio economy
Ease of doing business
Withdraw small, non reconciled and disputed direct tax demands of up to 25000 till FY10 and up to 10,000 for FY11 to FY15 – ease of living and doing business – benefitting 1 crore tax payers
Extension of tax benefits for start ups and investments made by sovereign wealth or pension funds and tax exemption on certain income of some International Financial Services Centre (IFSC) units by one year
Health
Health cover under Ayushman Bharat PM JAY extended to Accredited Social Health Activists and Anganwadi workers
U WIN platform for managing immunization and efforts of Mission Indradhanush
HPV vaccination for girls in 9 to 14 years age group for prevention of cervical cancer
Women
Target of Lakhpati Didi – from 2 crore to 3 crore - Training of SHGs to have sustainable income of 1 lakh per annum – already 1 crore Lakhpati Didis
High power committee to consider challenges arising from fast population growth and demographic changes
Increase in budgetary allocation for Department of Fisheries, Animal Husbandry and Dairying
Four castes
Women – Lakhpati Didis, cervical cancer, Ayushman Bharat extension
Poor – 2 crore housing under PMAY (G), new scheme for urban poor
Youth – 1 lakh crore corpus for R&D; deep tech in defence
Farmer – scheme for biomanufacturing (bioeconomy); increased allocation to allied sectors
Issues in budget
Big drop in fertilizer subsidies – especially when sea lanes in Red Sea are under attacks by Houthis
MGNREGA – 86000 crore for FY25 – hike by 26000 crore from BE FY24 i.e., 60000 crore
Centre has halted payments to West Bengal for 2 years – owing 7000 crore
5.6 crore households are registered under the programme – thus would provide only for 25 to 30 days
To meet employment needs of registered households, 3 lakh crore is essential
Additionally 15 to 20% of budget is spent on clearing past dues; Centre will have to clear dues to WB
60% cut in budget in UDAN
Modest capex growth – 11% compared to 33% last year – with skepticism over the revival of private investment cycle
Government’s counter cyclical fiscal policy might have the threat of undermining rising economic momentum
Slow down in capex spending of PSEs – as ratio to GDP, capex spending is moderated to 1% in FY25, lowest in recent times
Allocations for health and family welfare, agriculture, rural development, education have only seen marginal increases
Still long way for FD of 3% mandated by FRBM act
Agriculture
Modest growth in agriculture GDO as per first advance estimate - 1.8% - dip from 4% last year
Ministry of Fisheries, Animal Husbandry and Dairying witnessed 27% increase
Urgent need to manage foot and mouth disease, reduce methane emissions
Department of Agriculture and Farmers Welfare – slight uptick of 0.6%
Department of Agricultural Research and Education (DARE) and Department of Agriculture and Farmers Welfare together accounted for just 2.7% of total budget expenditure
Need to rationalize food subsidy as done in TPDS
In TPDS, wheat and rice were given free to only the Antodaya category of consumers, but charged 50% of MSP to BPL and 90% of MSP to APL
Saved funds can be used in micro irrigation – to boost productivity and enhance resilience against climate change
Need to minimize diversion of fertilizers to non agricultural sectors
About 20-25% of urea is diverted as per experts
Solution is to shift from subsiding the price of urea to directly empowering farmers through direct cash transfers – this will enable farmers to purchase fertilizers at market prices while reducing leakages
Distress in agriculture
Strong downward pull on agricultural prices squeezing agricultural incomes
Stagnation or fall of agricultural prices was not compensated by rise in MSP
Sharp rise in cost of inputs in agriculture, particularly fertilizers
Fall in real wages of agricultural and non agricultural rural labourers
Rise in female labour force participation ratio is by increase in women’s participation in unpaid family labour in agriculture
Public investment in agriculture in general and as well as agricultural research and innovation has been stagnant
Rural distress
Sagging rural economy with subdued demand
As per rural wages data from labour bureau, in last 5 years, agriultual wages in real terms have grown at only 0.2% per annum and non farm wages have declined at 0.9% per annum
Reversal of structural transformation in workforce after 2017-18
Increase in female employment is an increase in self employment worsening employment quality and declining earnings
Employment in agriculture has increased at a faster pace after 2017-18 – due to unemployment elsewhere
Thus resulting in declining cultivation income per worker
Sluggish consumption in rural areas
Way forward
To raise expenditure on investment in agriculture – to promote climate resilience
Effects of fiscal deficit
High borrowing costs with higher fiscal deficit as a percentage of GDP
Contractionary monetary stance by RBI – thus increasing borrowing costs of government post pandemic
Higher fiscal deficit leads to higher inflation
lower fiscal deficit may thus help improve the ratings assigned to the Indian government’s bonds
adversely affect the ability of the government to manage its overall public debt – IMF projection
lower fiscal deficit may help the government to more easily sell its bonds overseas and access cheaper credit – tapping into international market